CIMB Niaga’s 9MFY19 CNP of IDR2.7t is within market expectation, accounting for 75% of consensus estimate as both top-line and asset quality improved. The Bank will likely benefit from both consumer and corporate loans traction in the coming months with accommodative interest rates prevailing and improving asset quality. We maintain our earnings estimates pending the Group’s 9MFY19 results later this month. Maintain TP at RM6.45 and OUTPERFORM call as valuations are undemanding.

Within guidance. CIMB Niaga, a 92.5% subsidiary of CIMB Group recorded a core net profit (CNP) of IDR2.68t for 9MFY19, in line with market expectation, accounting for 75% of consensus full-year estimate. CNP growth of 3% moderated YoY due to one-off MSS cost of IDR359b. Stripping of this one-off expense, CNP would have jumped (+17%) to IDR3.01t.

Operating metrics largely within guidance with asset quality improving. Top-line was up by 13% to IDR14.3t, driven by NOII (+33%) supported by improving NII of 5% to IDR9.47t. The strong NOII was underpinned by strong gains in financial assets (+120%) to IDR1.67t. The improving NII was underpinned by stronger NIM (+26bps) to 5.2% (within guidance) as loans grew stronger by 5% (within guidance) to IDR192t. Loans were underpinned by consumer and corporate banking growth at +8.5% and +8.3%, respectively, with mortgages (+12.6%) and credit cards (+11.3%) the driver of consumer banking. Despite the one-off MSS, cost was well contained as Cost-to- Income (CIR) shed 140bps to 46%. Asset quality improved as GIL fell 79bps to 2.62% (mainly due to NPL sale), hence loan loss provisioning fell 11% to IDR5.5t pushing up loans loss coverage by 11ppt to 110%. Credit charge remained stable at 178bps.

QoQ, this is the weakest quarter with CNP (-32%) registering IDR700b attributed to the one-off MSS. Excluding the MSS, CNP would have been IDR1.01t (+2.3% QoQ). Top-line continued to improve driven by NOII (+5%) but NII fell 3.7% as loans were marginal with NIM coming under pressure (-21bps) as assets were repriced due to the interest rate cut. Asset quality was mixed with GIL falling 25bps to 2.62% but credit charge saw a 17bps uptick to 1.97%.

Consumer the driver supported by corporate spending. While NIM was as guided, the recent spate of Indonesian rate cuts coupled with tightening LDR are undermining NIM ahead; but management guided that NIM will be above the 5% level in the next few quarters. We are encouraged with improvement in corporate loans as the bank is benefitting from Indonesia’s splurge in infrastructure spending coupled with the decisive conclusion of Indonesian Presidency in April 2019. As the bank focuses on the mass affluent segment, accommodative interest rates will spur consumer banking with the bank guiding for better auto loans in the coming quarters.

Forecasts unchanged for the Group as Niaga’s results came within expectations and guidance. Historically Niaga’s contribution to the Group is at ~20%. 1HFY19 PBT contribution was at 19%. The Group’s 9MFY19 results are expected end of the month; thus, FY19E NP of RM4.7b is maintained for now.

TP maintained at RM6.45 based on a FY20E target PBV of 1.06x (5- year mean). This is justified as we have been conservative in our assumptions and loans activities are expected to gain traction from both Malaysia and Indonesia going into 2020. Furthermore, the low interest rate environment will be supportive of loans coming from the consumer space. Hence, we reiterate our OUTPERFORM call.

Source: Kenanga Research - 1 Nov 2019